Business

• Role of business


  • Profit
  • Employment
  • Quality of life
  • Wealth
  • Entrepreneurship and risk
  • Innovation
  • Choice
  • Income and employment
• Role of a business Overview

  • Economic Role
  • Social Role
• Goods

  Tangible products to satisfy our needs and wants
• Services

  Intangible, value-added activities that a company provides to its customers
• Product


  The end result of production can be a good or a service
• Producing goods and services

  • Goods
  • Services
• All businesses provide goods and services to consumers in order to satisfy their needs and wants
• Profit


  The return or reward that business owners receive for producing products that consumers want and need
• Employment


  The act of being hired or employed by a company or employer
• Income


  Money received by a person for providing his or her labour, or a business
• Choice


  The act of selecting among alternatives
• Innovation


  An improvement on something already established
• Entrepreneurship


  Someone who starts, operates and assumes the risk of a business
• Risk


  The possibility of loss
• Wealth


  Measures the value of all the assets of worth owned by a person, company, or country
• Quality of life


  The overall wellbeing of an individual and is a combination
• Types of businesses


  • Small to medium enterprises (SMEs)
  • Large
  • Local
  • National
  • Global
  • Primary
  • Secondary
  • Tertiary
  • Quaternary
  • Quinary
  • Sole trader
  • Partnership
  • Private company
  • Public company
  • Government enterprise
• The Australian Bureau of Statistics has developed a number of criterion by which the size of a business can be classified
• Classification by employees


  • Micro (1-4 employees)
  • Small (5-19 employees)
  • Medium (20-199 employees)
  • Large (200+ employees)
• Small business


  • Corner store, local mechanic, hairdressing salon
  • Fewer than 20 employees
  • Independently owned and operated by usually one or two people
  • Sole trader, partnership
  • Owner responsible for majority of decisions ; simple and quick implementation
  • Owner difficulty in accessing loans
  • Small, usually local area ; dominant in the industry
• Medium business


  • Services club, motel/hotel
  • 20-199 employees
  • Independently owned and operated by a few people and shareholders
  • Partnership and Private company
  • Owner responsible for majority of decision
  • Owner savings and/or loans from private shareholders
  • Medium due to dominance within a geographical region
• Large business


  • Woolworth, Qantas, NAB
  • 200+ employees
  • Owned usually by thousands of public shareholders
  • Public company
  • Complex decision making, due to division of responsibilities among direction/directors, senior and middle management
  • Many sources, including cash reserves, retained profits, sale of shares
  • Large as multinational TNGs
• Geographical Spread


  • Local
  • National
  • Global/transnational corporation
• Industry


  • Primary
  • Secondary
  • Tertiary
  • Quaternary
  • Quinary
• Business Legal Structures


  • Sole trader
  • Partnership
  • Private company
  • Public company
  • Government
• Incorporated


  The process companies go through to become a separate legal entity from the owner/s
• Unincorporated


  A business that does not possess a separate legal identity from its owner(s)
• Unlimited liability


  The business owner is personally responsible for all debts
• Limited liability


  The owners (shareholders) of the company are not personally responsible for the business debt
• Structure

  • Sole Trader
  • Partnership
  • Private Company
  • Public Company
• Owners


  • 1 Owner
  • 2-30 Owners
  • 1-50 Owners
  • Unlimited amount owners
• Advantages

  • Start-up costs are low
  • Full control over decisions
  • Majority of profit to owner
  • Easy to cease operation
  • Establish/operating is simple
  • Partners get to share the responsibilities/burdens
  • Other members of the family can be involved
  • More capital can be raised
  • Tax liability can be reduced
  • Better work/life balance
  • Minimal government regulations
  • Separate legal entity
  • Limited Liability
  • Perpetual Succession (doesn't stop when owner dies)
  • Borrowing capacity
  • Raise capital through selling shares
  • Widen shareholder base and spread risk
  • High borrowing capacity
  • Perpetual succession
  • Growth and expansion opportunities
• Disadvantages


  • Unlimited liability
  • Capacity to raise money is limited
  • Taxed as single person
  • Life of the business is limited
  • Hard to take holidays
  • Risk of disagreements and tension between partners
  • Don't have total control
  • Profits need to be shared
  • Partnership may cease if one of them dies
  • Smaller resources
  • Cannot trade shares on ASX
  • Detailed financial accounts
  • Higher administration costs
  • Limited personal control over decisions
  • More legal requirements
  • Transparency all details kept in public domain
  • Ownership and control issues
  • Initial financial commitment is higher
• Sole Trader


  The establishment of a business by an individual ; there is no legal entity that owns and operates the business
• Advantages of Sole Trader

  • Simplest form
  • Low cost of entry
  • Complete control - owner makes all decisions
  • Less costly to operate
  • Owner keeps all profits
  • Less government regulation
  • No partner disputes
  • Flexibility in hours worked
• Disadvantages of Sole Trader

  • Unlimited liability for business debts
  • End of business when the owner dies
  • Burden of management
  • Difficult to operate if the owner is sick
  • Start up is not sufficient cash flow problems
  • Difficulty in raising finance for expansion
  • Long hours of work
• Government Enterprise


  Government-owned and operated businesses (GBEs) that provide essential community services
• Factors influencing choice of legal structure

  • Size
  • Ownership
  • Finance
• If business expands


  Legal structure must change to cater for more employees and owners
• Legal structure depends on amount of control business owners want

  Sole trader - Only option with complete control

  Partnership, private - Less control as owners must share

  Public - Ownership is divided amongst thousands of small shareholders, no control over business operations